Quick updates on Q3 results:
1. Payments
1.1 Payments NTR has picked up smartly (@8.9bps) driving up the segment profit to 18.6 crore from 10.4 sequentially and 4.94 crore YoY.
1.2. Management gave strong commentary on the payment business and expect to drive the NTR to 10+ bps by FY25.
1.3 Tappay is commercial and management re-iterates guidance for 100K merchants for Q4FY23 and 1mn merchants by Q4FY24. Refuses to provide any specific numbers on turnover, volumes etc.
2. Platforms
2.1 Platform profits on the other hand have declined to 15.65Cr from 17.76 sequentially and 23.43 on YOY basis.
2.2. While commentary on GEM is strong particulary for Q4 (which always sees huge volumes) - the fact that the contract terms are re-negotiated to cap payout on higher value transactions and possibly large discounting on Govt to Govt orders - have taken out all cream from the GEM business (which can be seen from the nos above)
2.3 Presentl GEM contract runs out in Dec’23 (from the new RFP). Little/no hope for extension of the present contract.
2.4 The new RFP payout is based on Fixed + Variable model. The variable model is based on no of transactions rather than value of transactions and has a deep discounting scale model built in. This essentially takes out a lot of charm and the payouts are likely to be significantly lower then current payouts even at higher volumes.
2.5 Effectively, extra-ordinary returns from GEM will no longer be possible in the new contract. Even in the present one Q4FY23 is the only quarter in which some windfall is possible (which also is severly curtailed due to capping). Modelling likely nos is no longer possible.
3. Others
3.1 Trust Avenue not likey to see any revenue for next few quarters. No clear answer on timeline and potential. Till something concrete comes out, I would take 0 for FY24 on this account.
3.2 New International forays - Saudi is operational. No specific updates on any other geography.
3.3 No updates on NEU license.
Effectively:
- Platform business will get (maybe already is) discounted substantially.
- Payments business is the key to future profitability beyond Dec23. So valuation of Infibeam will need to follow that. Within Payment EBITDA growth will be driven by NTR improvements, International forays and contributions from TapPay.
- Q4 will possibly see a good uptick on GEM perforamce and continued recovery in Payments. If some part of the govt payout on UPI transaction can thru in Q4, that will add to it, else it will add to Q1 FY24 or whenever it happens.
- In short, back to being a being a 2 wheel drive car, than the potential 4 wheel drive.